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The Australian: Firms must be supported in embracing fintech
One of the hottest areas for new tech businesses at the moment is fintech — using technology to deliver financial services in different and disruptive ways to meet the needs of customers better.
For example, peer-to-peer lending businesses such as RateSetter, which launched locally last October, bring together a person wanting to lend money and a person wanting to borrow money.
Crowd-sourced equity funding platforms — such as Equitise, which has launched in NZ, and Israeli-founded OurCrowd, which has an Australian operation — use the internet to connect a company wanting to raise equity capital with potential investors.
Traditionally a person with money, wanting to make a debt or equity investment, faced large search costs — in the economics jargon — to find a suitable lending or investment opportunity.
The internet dramatically reduces such search costs, and hence there has been a sharp rise in online marketplaces where such parties can find each other and transact. These are good examples of the way digital technology makes it possible to develop completely new approaches to providing financial services.
For several reasons, the Australian financial services market is attractive for entrepreneurs seeking to bring disruptive fintech applications to market. One reason is that Australians are early adopters of technology. We have one of the highest smartphone penetration rates in the world.
Recently Australians have responded enthusiastically to paywave technology — welcoming the convenience of being able to make a payment of up to $100 without giving a PIN, simply by waving a card over a reader.
Second, there is a big pool of Australians who hold significant financial assets, and who have a need for financial services to manage those assets. According to Credit Suisse, in 2014 Australia had the highest median wealth per adult in the world, and 1.25 million adults with investable wealth exceeding $US1 million ($1.29m).
A third factor is that Australia’s big banks are among the most profitable in the world. According to the Bank for International Settlements, the big four have bigger net interest margins than most banks of similar scale.
Fourth, there are some obvious areas where technology could deliver a much smoother customer experience — for example, the fact the $2 trillion superannuation sector is still heavily paper-based in the way it handles transactions.
A recent report from KPMG highlighted the fintech opportunity for Sydney, citing the combination of a strong financial services sector with a cluster of information and communications technology, creative and professional services industries.
Of course, as that report also noted, fintech is an intensely competitive space. Governments in Britain, New Zealand and many other countries have a clear focus in this area, so we will need to work hard if Australia is to capture a fair share of the fintech opportunity. We also need to review some regulatory restrictions on fintech applications — while maintaining appropriate investor and customer protections.
For example, today the law in Australia restricts the use of crowdfunding to raise equity, as it would not meet existing requirements about the form in which investor disclosure is provided.
The Abbott government has announced that we intend to relax these restrictions, with legislation planned to be introduced into parliament in the spring sittings.
We want Australian businesses to be able to take advantage of the efficiencies the internet can offer in raising equity capital: it is now possible, at low cost, to publicise investment opportunities to large numbers of people and to collect relatively small amounts of capital from large numbers of people.
There will still be a need for investor disclosure, but the capacity to publish information very rapidly to potential investors online should allow more efficient and low-cost ways for companies to give the necessary disclosure than, for example, the traditional prospectus requirement. Our commitment to legislate in this area forms part of the Abbott government’s agenda to support fintech.
Other parts of that agenda include our work to improve Australia’s digital infrastructure through the national broadband network, the recently announced Digital Transformation Office with its focus on delivering government services over the internet, and a suite of policies to stimulate start-up businesses.
For example, we are legislating to improve the tax treatment of employee share schemes; to allow start-up companies to immediately deduct professional expenses incurred when they begin a business; and to reduce company tax to 28.5 per cent for early stage start-up companies (with revenue below $2 million.)
